AMR CEO says to move forward with merger review

Soyoung Kim

4 IN. DI LETTURA

NEW YORK (Reuters) - The parent of American Airlines will go ahead with plans to evaluate potential mergers and other strategic options and will reach out to interested parties, Chief Executive Tom Horton said on Tuesday.

A US Airways plane passes American Airlines planes at Ronald Reagan National Airport in Washington April 23, 2012. REUTERS/Kevin Lamarque

“We are approaching the point where we have greater clarity on our revenue outlook and cost structure and can begin to accelerate the plan for the new American,” Horton said in a letter to employees.

“It now makes sense to carefully evaluate a range of strategic options, including potential mergers, which could make the new American even stronger.”

The letter comes two months after the airline’s parent, AMR Corp AAMRQ.PK, said it would explore merger options while still in bankruptcy, bowing to pressure from creditors, including its largest labor unions.

Prior to the agreement in May with unsecured creditors, American said it intended to reorganize as a stand-alone carrier, shrugging off merger interest by rival US Airways Group Inc LCC.N.

American, however, has faced mounting pressure from vocal members of its creditors committee who believe a merger with US Airways would give the combined carrier a strong network to compete with rivals beefed up by their own mergers.

The development also came as American takes new steps to stabilize its court restructuring with progress on labor negotiations aimed at achieving more than $1 billion in annual cost reductions, mainly from unions.

The airline has struck a tentative deal with pilots for cost savings and on Tuesday reached a similar agreement with the final two groups of unionized mechanics and other ground workers. Talks continue with flight attendants.

As part of the evaluation led by management and the board in collaboration with its creditors committee, Horton said American is examining the strategic fit of possible combinations - including an analysis of synergies, costs and tax and capital structure implications.

He added that American met its creditors committee earlier on Tuesday and discussed its preliminary view of the strategic options available.

US Airways said in a statement it was pleased with the development.

“All we have asked for is a fair and balanced opportunity to present our plan versus others, and we are hopeful this is the beginning of such a process,” US Airways said in a statement. “We remain confident that our plan will maximize value for all stakeholders.”

Horton said he has been a proponent of industry consolidation for many years and the company has assessed “many possible combinations” in the past, including an acquisition of US Airways. He added that he had also approached his counterparts at other airlines last year to discuss the merits of possible combinations.

But since American slid into Chapter 11, Horton’s view has been that American should first straighten out its own business before considering a “complex and challenging airline acquisition,” he said.

“That is just common sense. But it is also a prudent merger strategy, should we take that path, to assure that we begin from a position of greatest strength and stability.”

Delta Air Lines Inc (DAL.N) and Northwest Airlines both emerged from bankruptcies several years ago as stand-alone companies before striking a merger deal with each other. United Airlines also stepped out of Chapter 11 on its own before tying up with Continental Airlines.

American has sought court permission to extend until the end of the year the time it can take to develop a business plan without interference from outside parties. The current exclusivity period expires at the end of September.

AMR’s bankruptcy is in re AMR Corp et al, U.S. Bankruptcy Court, Southern District of New York, No. 11-15463.

Reporting by Soyoung Kim in New York, additional reporting by A. Ananthalakshmi in Bangalore; editing by Gunna Dickson and Andre Grenon